One of the most valuable malls in America is getting a makeover

Unibail-Rodamco-Westfield's Garden State Plaza mall in Paramus, New Jersey, is being renovated.

After the upgrades are complete, Garden State Plaza will have a residential community, office space and an outdoor park.

Many landlords are looking for ways to redefine their malls today, as retailers close up shop and consumers' preferences evolve.

Shoppers walk through the Westfield Garden State Plaza mall in Paramus, N.J.

Emile Wamsteker | Bloomberg | Getty Images

One of the most valuable malls in America is about to get a total makeover, further signaling how bricks-and-mortar retail is evolving to include places to work, workout and even live — not just buy clothes.

This mall sees more than 20 million visitors per year and is considered one of the more productive assets in Unibail-Rodamco-Westfield's portfolio of 92 centers, across a dozen countries, today. The real estate investment trust also owns Westfield Century City in Los Angeles, and Westfield World Trade Center in New York. Unibail-Rodamco, Europe's largest commercial landlord, bought mall owner Westfield last year.

"What people are asking from the mall is much more," than what it was just four years ago, Unibail-Rodamco-Westield's U.S. president Jean-Marie Tritant said. "People want convenience ... to be able to socialize."

American shopping malls tend to be "much more enclosed" and "a little bit like bunkers," he added. "Now we need to connect them to the local environment."

Mall owners across the country realize consumers' preferences are changing. More people are turning to the internet to buy apparel and furniture. And when they do venture out to shop, they want to stumble across unique experiences and good food. That's as retailers left and right are shutting hundreds of stores, big and small, forcing mall owners to get creative with the empty spaces or risk their properties becoming irrelevant. More than 6,000 store closures have already been announced by U.S. retailers in 2019, topping all of 2018. And there are estimated to be about 1,100 malls across America, arguably too many.

"Hundreds of store closures — particularly of large department stores — are accelerating the transformation of malls, forcing landlords to re-tenant an unusually large portion of their centers," commercial real estate services firm Green Street Advisors' analyst DJ Busch said in a research note. "A center's ability to attract good tenants is being tested more than ever."

Green Street has estimated there are currently almost 800 vacant anchor spaces at U.S. shopping malls.

A rendering of what Garden State Plaza will look like after Unibail-Rodamco-Westfield's redevelopment of the mall.

Source: Unibail-Rodamco-Westfield

As part of the ongoing renovations at Garden State Plaza, a former J.C. Penney store within the mall and a freestanding Best Buy store on the property are being gutted for new uses.

Unibail-Rodamco-Westfield said this year it will begin remodeling the inside of the center to add more chef-backed eateries, entertainment for families and health-and-wellness tenants. The unveiling of the new residential space, office building, hotel, public park and open green space will come in 2022, it said.

"When you bring additional food and entertainment ... what happens is you increase the dwell time," of shoppers at the mall, Tritant said. "The dwell time is much higher ... and a consequence of that is people spend more."

Garden State Plaza is anchored by department store chains Nordstrom, Neiman Marcus, Macy's and Lord & Taylor today. And while the mall includes luxury retailers like Louis Vuitton and Tiffany, it's also managed to attract so-called digitally native brands like glasses maker Warby Parker, shirt retailer Untuckit, athleisure company Fabletics and cosmetics chain Riley Rose to open up stores there.

Still, there's not a ton of evidence yet that supports the idea that bringing "experiential" tenants to malls will amplify activity there. A recent study by Thasos Group found malls with so-called experiential tenants that aren't just focused on selling products — like Apple, Italian food hall Eataly and Tesla — haven't been drawing in extra traffic. Up until the final three months of 2018, indoor shopping malls with "experiential" tenants didn't benefit from greater shopper traffic on a year-over-year basis when compared with indoor malls without any of those unique, nonapparel tenants, Thasos said.

But there is evidence that when mall owners make additions like office space and apartments to their properties, sales per square foot — a key metric monitored by analysts in the industry — increase significantly.

Macerich, one of the few publicly traded mall owners to disclose the sales-per-square-foot metric for each of its assets, has transformed Tysons Corner Center in Virginia to include a 1.5-acre outdoor plaza for events, a 22-floor office tower, a 28-story residential apartment tower and a Hyatt-operated hotel.

Tysons Corner has gone from bringing in $645 in sales per square foot in 2009 to nearly $1,000 by the end of 2017, BTIG REIT analyst Jim Sullivan said. "In making some of these assets mixed use ... you have really dramatic growth in productivity."

Macerich is also one of the first mall owners to begin adding coworking spaces inside its malls, filling space once used by department store chains. Other REITs are trying this, too. Unibail-Rodamco-Westfield added a WeWork at Fulton Center in New York. And Pennsylvania REIT recently added a coworking space to Cherry Hill Mall in New Jersey, the first time it's worked with this type of tenant, with plans for more. The space, called 1776, sits right near Forever 21 and Nordstrom, and can accommodate more than 200 members.

Meantime, Simon Property Group, the largest mall owner in the U.S., recently broke ground on its redevelopment of Phipps Plaza mall in Atlanta. It's going to include a Nobu Hotel, a 90,000-square-foot Life Time fitness and entertainment center, and a 13-story office tower, once completed.

Later this month, all of these mall owners will come together in Las Vegas at the International Council of Shopping Centers' annual retail real estate conference, the largest gathering for this industry in the world, to discuss how the companies are combating store closures, working with upstart digital brands to open brick-and-mortar stores and more.